Online-only retailers currently have a distinct advantage when it comes to shipping products to another state. By current law, they are not required to collect a state’s sales tax when shipping to that state. Although customers still owe that tax, there is no real way for an individual state to force a company in another state or country to pay those taxes. According to David French, Senior Vice President for Government Relations at National Retail Federation, “This sales tax disparity hinders community-based retailers, hurts Main Street jobs, and has lead to a $24 billion loss for state and local governments.”

In response to this loophole, a group of bipartisan senators introduced the Marketplace Fairness Act in November 2011. The Act aims to require online retailers to charge and remit an online shopping tax to the states where they are shipping. This may level the playing field for small multi-channel retailers, giving them a chance to compete with the digital giants.

Pricing

As a small multi-channel retailer, not only are you struggling to compete with large digital companies in the online world, but the sales tax loophole – called the interstate commerce clause, the result of the 1992 Supreme Court case “Quill Corp. vs. North Dakota” – means that your brick-and-mortar stores are unable to compete on pricing. No matter how low you price a product, you are collecting sales tax at point of purchase while an online-only retailer isn’t. The Marketplace Fairness Act, by requiring online-only retailers to also collect and remit the sales tax, could allow brick-and-mortar stores and multi-channel retailers to charge competitive prices.

Supporting the Local Community

Retailers with Main Street stores, even if they also run an online store, support the local economy. This includes supporting the real estate industry by renting or buying storefronts, as well as employing local people. Loss of jobs here results in a loss of payroll and associated taxes within the state. A bill like the Marketplace Fairness Act will give small multi-channel retailers a chance to aid their local economy. In Ohio alone, according to the University of Cincinnati, passing this bill would contribute an annual $200,000,000 in state taxes, as well as providing 11,000 more retail jobs per year. This in turn will reflect back on your business by providing you with competent employees and customers who can spend money in your stores.

Nexus/Amazon Laws

Some states have passed laws on their own that require the remittance of taxes from online-only retailers. These laws, known as nexus or Amazon laws, further distort the marketplace, according to the information websitefor the Marketplace Fairness Act. With a nation-wide online shopping tax, not only will your business be able to compete in a free market, but the tax will reduce the confusion that comes from trying to find out which states have Amazon laws and which do not – and the possibility of making a mistake and being audited.

Concerns and Opposition

Although the major opponents of this bill are the large retailers who will be subject to the bill, others have expressed concerns about a nation-wide online shopping tax. According to South Carolina Republican Senator Jim DeMint, “The Marketplace Fairness Act’s authors admit the costly burdens it would force on small businesses by exempting companies with less than $500,000 [now $1,000,000] in annual sales. But that is a very low threshold to cross and will likely discourage businesses from growing.”

However, as a small business owner and a multi-channel retailer, you will have to weigh the pros and cons of the bill as it applies to your business. A nation-wide online shopping tax for large online-only retailers may be the boost that you need to really compete on a level playing field within your brick-and-mortar stores. The exemption for small online retailers will also aid your business in making a profit instead of having to spend all your money on accountants and possible audits.

Without a bill like the Marketplace Fairness Act, large online-only retailers will continue to have the advantage in pricing their products 5-10% lower than brick-and-mortar stores and small multi-channel retailers. In a true free market, all businesses should be subject to the same rules, no matter their format or their size. By leveling the playing field, the Marketplace Fairness Act will protect small businesses, aid the local community, and support each state’s – and the nation’s – economy.

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